ISSN 0428-1276 Low inflation over long periods is the sign of an effective central bank. The authors suggest that a large fraction of the worldwide decline in inflation since the early 1980s results from an international movement toward more independent central banks. Industrialized nations have achieved a remarkable decline in inflation: Their average annual rate tumbled from 5.6% in the 1955–...

How much information should a Central Bank (CB) have about (i) policy objectives and (ii) operational shocks to the effect of monetary policy? We consider a version of the Barro-Gordon credibility problem in which monetary policy signals an inflationbiased CB’s private information on both these dimensions. We find that greater CB competence—more private information—about policy objectives is de...

Increasing the independence of a central bank from political influence, although ex-ante socially beneficial and initially successful in reducing inflation, would ultimately fail to lower inflation permanently. The smaller anticipated policy distortions implemented by a more independent central bank would induce the fiscal authority to decrease current distortions by increasing the deficit. Ove...

As the central bank of the United States of America, the Federal Reserve System consumes vast quantities of economic, financial, and organization structural data. These data are used for making monetary policy, conducting banking supervision, performing economic research, and implementing consumer protection policies. The focus of this paper is on micro data archived at the Board of Governors o...

We propose a signalling model in which the central bank and firms receive information on cost-push shocks independently of each other. If the firms are rather unlikely to receive information directly, the central bank should remain silent about its own private information. If, however, firms are sufficiently likely to be informed,. it is socially desirable for the central bank to reveal its own...

I study optimal monetary policy when both the central bank and the private sector have imperfect information about the underlying economy. I model forward guidance as providing the central bank’s own forecast on optimal policy conditional on its own imperfect information. When the private sector has rational expectation, it is able to infer the imperfect information held by the central bank fro...

We propose a simple model of inter-bank borrowing and lending where the evolution of the logmonetary reserves of N banks is described by a system of diffusion processes coupled through their drifts in such a way that stability of the system depends on the rate of inter-bank borrowing and lending. Systemic risk is characterized by a large number of banks reaching a default threshold by a given t...

Since March 1998 the Central Bank of Iceland’s main instrument has been the interest rate on its repos with credit institutions. Until spring 2001 the Bank used this rate to maintain the exchange rate of the króna within its deviation band. After moving on to an inflation target that spring, the Bank has applied its policy rate towards maintaining the target. Changes in the Central Bank policy ...